Legislature(1997 - 1998)
02/17/1998 08:15 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 285
"An Act relating to state procurement practices."
Co-chair Pearce first called SB 285 and indicated that this
bill was introduced by the Senate Finance Committee at the
request of Associated General Contractors. Present was Mr.
John Wheatley from Associated General Contractors. She also
noted that there was a sponsor statement by the Senate
Finance Committee in the packets as filed. On line via
teleconference were Henry Springer, Executive Director,
Associated General Contractors and John Eng also with
Associated General Contractors.
John Wheatley, Executive Vice President, Willis Corron
Corporation was invited to join the committee. He said the
company he was with was one of the largest commercial
insurers and construction surety bond brokers in the State.
He is also Legislative chair for the Associated General
Contractors this year. He thanked the committee for
allowing him to testify in favour of SB 285. He said
currently, when highway improvements were needed, a project
was designed, advertised and a contract was awarded for the
work. He explained that when a highway being improved
crossed a railroad track, the Alaska Railroad had input and
the Department of Transportation negotiated a force account
cost plus contract with the Alaska Railroad for that work.
This would reduce the amount of work for the private sector
and removed tax dollars from a competitive bid. He further
said that they supported SB 285 which would require the
Alaska Railroad to utilize the competitive bid process and
would establish a fair and effective manner to award
contracts for projects that cross the railroad.
Senator Phillips said perhaps the opposite argument against
the bill would be the safety aspect. He noted that
apparently the railroad workers felt more qualified. Mr.
Wheatley responded saying the work was inspected, built to
specifications, therefore satisfying the safety issue. In
response to further question from Senator Phillips he
indicated that inspections were done by the State
inspectors.
Senator Parnell asked if these were contracts DOT was
putting out or the railroad? Mr. Wheatley responded that it
was DOT. He asked if they would require contractors to have
experience and be licensed and insured to cover any
potential problems that may arise? Mr. Wheatley agreed it
was typical. Senator Parnell further inquired that as part
of the procurement process sufficient experience would be
required to award the contract otherwise they would not
allow just anyone to obtain the bid? Mr. Wheatley stated
that as pointed out, public contracts, particularly
Department of Transportation contracts, require the
contractors to provide surety bonds that guarantee
performance of the work.
Henry Springer, Executive Director, Associated General
Contractors testified via teleconference from Anchorage. He
said one of the key points in AGC by-laws and regulations
was that they subscribe to open competitive bidding
processes. He pointed out that categorically, contractors
could build anything anyone wanted to have built. If it was
something highly specialized or not in the general scope of
work there were a variety of specialty contractors who
perform those specialties in all categories, usually as
subcontractors to general contractors. Everyone knows that
the Alaska Railroad is not a purely public entity, however
DOT is and they receive public funds out of the highway
trust funds through the Federal Highway Administration.
Consequently they are bound to abide by different
procurement regulations, including in the State of Alaska,
the State Procurement Code. The work being questioned was
those areas where a State highway or a Federal registered
highway crossed a railroad right-of-way. This was not
different than any other work that needed to be done when
the owner is not DOT or the State of Alaska. Included would
be different private entities, native lands and such. In
general, he said, it was DOT's work over railroad land in
agreement with the railroad, if it pertained to bridges and
overpasses. He voiced concern, however, when it came to
railroad crossings that were at the level of the track.
What typically happened was that DOT made an agreement with
the Alaska Railroad and gave the money to the railroad.
There is no true check and balance system regarding what
would be the best price for the work in regards to public
policy. The only way to find out is to put the project out
to bid. In cases where there are restrictions placed or
unsolicited, basically agreed upon agreements together, it
was always more expensive; the excuse being the operational
or technical necessity to do so. This was usually done in
the form of a grant or force account agreement. The grant
is a lump sum payment to the owner to do whatever must be
done to satisfy demands; force account is basically paying
for personnel, materials, equipment and time in the form of
an agreement and was usually used when the scope of the work
was not clearly defined. He said in this case that was not
true. The scope of work was not unforeseen and could be
clearly defined by the owner, the operational demands could
be clearly defined by the owner and therefore, there was no
reason the railroad should not bid work that was financed
with public funds from the Department of Transportation.
That was the only way to guarantee that public policy is
adhered to and people get the best price for the work. He
noted the two safety concerns, one being operational safety.
He said that was ongoing train schedules and operations by
the Alaska Railroad. He said he had been involved in
several projects involving the railroad and usually a
retired railroad person was put on the payroll of the
contractor and that had been done with success. Or, there
was also nothing preventing the Alaska Railroad having a
person safeguarding their safety operational requirements on
the project. That individual could be paid through project
funds. Mr. Wheatly already indicated all public work being
done had to be bonded, so there would be a check and balance
in the guarantee that the owner would get what he needed.
He said his testimony laid out there were no present
circumstances why the jobs should not be bid.
Dennis Poshard, Legislative Liaison, Department of
Transportation and Public Facilities was invited to join the
committee. He said the department did not oppose or support
the bill. He pointed out that their only concern with the
bill was that their costs did not go up as a result of it.
The railroad may want to address this at some point.
Currently, he said they were happy with the process used for
dealing with railroad crossings on road projects. A portion
of the project that related to railroad crossings, such as a
road going across railroad tracks, was separated and was not
included in the bid. Then a force account contract would be
negotiated. They had a fair idea of figuring out what the
costs were and negotiating a reasonable contract. The
railroad, up to date, had chosen to do with their own
personnel and their own equipment. Whether they contract
out or not is not a concern of the department. They thought
the current process was good and felt it was better for the
railroad to do the work and have their own inspectors on the
projects. It saved the department from having to meet with
them, include it in bid specs, work with the contractor and
then try to go and sell the completed project to the
railroad. This was mostly for safety reasons and the ease
of trying to coordinate that part of the project. He did
not want to speculate as to whether the safety would improve
or go up or down if a contractor were to do the work or
whether the costs would go up or down. The department only
wanted to make sure that if the bill passed or did not pass,
the committee would consider whether or not the department's
costs would go up as a result. He further pointed out, with
regards to the sponsor statement there were statements made
that this would allow the Alaska Railroad to define how a
portion of their tracks that interphase with the highway
improvement project could be improved at taxpayer expense.
He said, however, the railroad was not the only benefactor
of taxpayer money on road projects. For example, they also
work with utility companies to bury power lines. He said
the railroad did not define how much their portion of the
highway project should cost. The department's own project
manager does the negotiating with the railroad and assures
that the costs stay down. Other entities also benefit from
DOT road projects. He said the department did not provide
for any profits in the contracts.
Senator Phillips asked if this process in Alaska was any
different than the States of Washington or Montana that also
deal with railroads? Mr. Poshard indicated he had no
experience with these states.
Senator Parnell asked if sufficient experience of the
contractors was required in the request for proposal to
complete this kind of work? Mr. Poshard said as he read the
bill it would be up to the Alaska Railroad Corporation.
But, the department would work with them. With regards to
the work the railroad was currently doing they would be
required to contract that out. Either the department would
have to give them money, issue the contract separately or
the department making it part of the overall road project
contract.
Senator Parnell asked what was the volume of dollars on an
annual basis directly distributable to railroad crossing
work? Mr. Poshard said he did not have exact figures,
however, he said part of the reason they did not oppose nor
support the bill was because it was a very miniscule amount
of the total road budget that they have annually. Senator
Parnell asked that Mr. Poshard explain "miniscule" amount
and Mr. Poshard said that statewide it may amount to a
couple of million dollars. On a per project basis it was a
very small amount.
Senator Parnell asked if an analysis had been done on
whether or not there would be a cost savings or increase for
putting the job out to bid? Mr. Poshard said they were
currently doing that work and had requested such information
from the railroad. Senator Parnell requested a list of this
information. He further commented on the fiscal note,
realizing that it was difficult to estimate costs.
Co-chair Pearce said it was her understanding from the AGC
that DOT&PF used to contract projects out, as either part of
larger road projects or smaller ones. She wanted to know
when the department started going directly to the railroad
and have them do the work. Mr. Poshard said he was not
certain when that changed. He could only speak to current
procedures and did not know how long those had been in
place. He advised the Co-chair he would check this out and
get back to the committee.
Senator Phillips asked when there was a major road project,
involving power lines, cables, etc. did they contract to
whoever owned the power line or did the contractor remove it
as part of the road project? Mr. Poshard said he could not
respond to this, but he would be able to get back to the
committee with the answer.
Co-chair Pearce referred to right-of-way and said
occasionally utility companies find they get to move their
utilities or up-grade them as part of a larger project and
asked if a fee was paid to the State for the right-of-way?
Mr. Poshard said he believed the utilities companies pay a
fee for the right-of-way. Co-chair Pearce indicated they
were treated somewhat different.
Co-chair Pearce requested that materials asked by the
committee to be supplied be done as timely as possible.
Jim Blasingame, Alaska Railroad testified via teleconference
from Anchorage. He indicated that Mr. Bill Hupprich,
Associate General Counsel was also present. Mr. Blasingame
said the railroad had no real objection to the proposed
legislation as written. Unfortunately he said they did not
have the benefit of the statements made by the other
individuals, so they could only reply briefly. With regards
to contracts or force accounts provided to the Alaska
Railroad from DOT, he said: "we are a utility company just
as other utility companies where DOT goes to Chugach
Electric or ATU to perform those kinds of work". He further
said that theirs had to do with crossings, in the sense that
if someone else were to do it, the Alaska Railroad would
have to have its inspectors certify that the work was being
done properly. In addition, they would have to have
flagging protection for the trains. He said those would be
additional costs that would probably amount to about ten
percent more than what they would already have. He said
they did not make any profit off that work performed at
those crossings. With reference to Mr. Poshard's testimony,
when DOT provides a contract to the Alaska Railroad for
crossing construction, they actually audit the railroad's
books and determine the rate to insure they were not making
a profit. It is all done at cost. He noted further for the
committee, that their union labor agreement dictated that
all railroad operating work be performed by railroad
employees. That would be a problem if it were to be
dictated to be contracted out. He believed there was a
State law pertaining to utility companies that perform works
on their right-of-way by the Department of Transportation.
Bill Hupprich, Associate General Counsel for the Alaska
Railroad, testified via teleconference from Anchorage. He
believed there was a State law that allowed utility owners
the right to perform DOT&PF work using their own personnel,
their own equipment and their own materials. He indicated
that would be found at 17 AAC, section 15.31.0 to 461, and
17 AAC, section 15.471 to 551.
Senator Parnell queried Mr. Hupprich as to the wording in
the contract related to the earlier statement by Mr.
Blasingame that all railroad operating work must be done by
employees. Mr. Hupprich said it was in their collective
bargaining agreements. Basically, they require any on-track
work, including moving the track, picking up the rail,
putting in new ties, ballast and installing crossing signals
had to be done by railroad workers. Or at least they have
to have the opportunity to bid on that work.
Senator Parnell felt that was the key, not that it was
required, but rather they had the opportunity to bid. He
asked Mr. Hupprich to clarify what the regulations were in
regards to utility owners. Mr. Hupprich, referring to his
notes from last year, said that any utility owner, be it
water line company, telephone company or electrical company,
had the right to perform any DOT required relocation of
their utility with their own labor forces and their own
equipment. That was because they were the owners of the
cable, water line, or in this case, the railroad track,
which was being relocated. Senator Parnell asked whose
regulations those were and Mr. Hupprich responded that he
was not sure. He briefly noted Title 17. Senator Parnell
asked, if under those regulations, the railroad was classed
a utility and Mr. Hupprich responded that he believed so.
Co-chair Pearce said this was yet another hat they wanted to
wear.
John Eng, President, Cornerstone Construction, testified
before the committee via teleconference from Anchorage. He
said they were general contractors incorporated in the State
of Alaska to perform work of this type in addition to other
general construction. They felt the bill addressed only
projects financed with tax dollars. It did not deal with
projects that the Alaska Railroad paid for with revenues
generated within their own organization. He gave an example
of the Federal Government having several miles of railroad
on Ft. Wainwright. They have for several years contracted
with the Alaska Railroad to maintain the line and do all
construction on a force account basis. Two years ago they
did advertise for bids and the company did submit a bid on
the job. They were awarded the contract and the railroad
was happy enough with their work to extend the contract by
an additional year and have options to do so in future
years. He said approximately eighty percent of the man
hours paid out on the project were higher wage rates than
those paid by the Alaska Railroad or the prevailing wage
rate. Twenty percent was paid at the prevailing wage rate,
which was the same as paid by the Alaska Railroad. Yet, the
cost the owner was paying was approximately twenty-five to
thirty-five percent cheaper than they were paying the Alaska
Railroad to perform the same work. The last work last month
as performed by the Alaska Railroad, compared to the
subsequent months that they performed the work, the cost
savings were approximately twenty-six percent. That was
typical and in that range of twenty-five to thirty-five
percent savings. They felt it was a win/win deal for
everyone. Costs were reduced, public dollars were spent in
a public format by advertising for bids and by defining what
was required on contract documents the owner should get what
they want. The safety issues as affected the public were
the same as when a highway was built. The general
contractors had certain safety requirements they had to
adhere to when a road was under construction. The railroad
had to adhere to the same requirements. He could also
answer one other question, as a general contractor, and said
they bid on road and street work all the time that involved
other utilities, such as Chugach Electric or telephone
utilities. In those contracts the scope of work was defined
such as relocating underground conduit lines and so forth
that utility lines pass through and what they did was use
specialty personnel for that work and it was relocated as a
bid item on the bid documents. In the particular case of
Chugach Electric underground utilities, that work was
included in public bid documents for street widening and was
competitively bid.
Senator Phillips asked who owned the right of way going from
the railroad to the post in Fort Wainwright? Mr. Eng
indicated it was owned by the Alaska Railroad. On the base
it was owned by the Federal Government.
Jim Blasingame, via teleconference from Anchorage, said he
wanted to correct the comment by Mr. Eng regarding the
right-of-way in Fort Wainwright. He said it belonged to the
U.S. Army and not the Alaska Railroad. Co-chair Pearce said
it was indicated by Mr. Eng that the right-of-way to the
Fort belonged to the Alaska Railroad and on the Fort it
belonged to the Federal Government.
Senator Torgerson queried Mr. Blasingame with regards to
direct grants from the Federal Government in the approximate
amount of ten million dollars per year. He asked if that
money went through DOT and were there any other
appropriations that might be public funds funneled through
DOT that did not have direct correlation to railroad
crossings? He said this bill covered procuring supplies,
professional services or construction and that was a fairly
broad-based statement. The question was whether federal
money or public money might come to the railroad through
DOT. Mr. Blasingame responded that the other grants do not
come through DOT. They came directly to the Alaska Railroad
through the Federal Railroad Administration who actually
administered the money. The only thing received from DOT
had to do with the crossings where the highway and the
railroad intersect.
Co-chair Pearce said she would hold the bill in committee
until fiscal notes were received from the Alaska Railroad
and the Department of Transportation and Public Facilities.
She further asked Mr. Blasingame or Mr. Hupprich to provide
the appropriate cites in their union contract requiring that
any work be done by railroad employees. Senator Parnell
indicated he was also interested in taking a look at the
contract. Mr. Blasingame indicated he would comply with
the request. Co-chair Pearce further stated that the bill
would be brought before the committee sometime next week.
With that she called SB 261.
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